Despite long-term pressures on traditional print publishing businesses, Germany's newspaper barons still dominate the domestic media scene. Led by Axel Springer, ten big publishing houses account for around 60 per cent of the market. The power of print is further underlined by a remarkably robust market in consumer and business magazines.
The best way of gauging the strength of the German print market is by comparison with the UK - arguably the most competitive newspaper market in Europe. Estimates from Zenith Media show that in 1999, German newspapers attracted a staggering DM16 billion (pounds 4.9 billion) in ad revenue - 45 per cent of the total display market. The UK press takes around 29 per cent of its domestic market.
The strength of the German newspaper market comes despite stiff competition from two powerful commercial TV operations - RTL Group and Kirch Gruppe.
Although TV doubled its ad revenue share between 1988 and 1995, growth during the back end of the decade was much slower. By 1999, German TV took just 23 per cent of ad revenue compared to 28 per cent in the UK.
This lacklustre performance comes despite aging readerships and a long-term decline in newspaper circulations (down 1.6 per cent year-on-year to 30.6 million copies a day in the fourth quarter of 1999).
Various factors explain the dominance of print in Germany. Firstly, deregulation in German TV is a relatively recent phenomenon compared to the UK (where ITV launched in 1955). Secondly, outdoor and radio in Germany are undeveloped compared with the UK - leaving more of the revenue cake for TV and press.
Thirdly, some of the role played by national newspapers in the UK is filled in Germany by upmarket current affairs magazines such as Spiegel, Stern and Focus. With each title selling around one million copies, they provide an advertising vehicle similar to Sunday broadsheets in the UK.
The single most important factor, however, is that Germany's newspaper market has traditionally been made up of powerful regional monopolies, says MediaCom's group head, Kari Jackson-Kloenther. For big regionally based advertisers (notably supermarkets chains), titles such as Bavaria's Suddeutsche Zeitung and Frankfurt's FAZ (Frankfurter Allgemeine Zeitung) have long been key advertising opportunities.
Each of these titles sells around 400,000 a day (comparable to The Guardian) and plays a role that is not replicated by commercial television.
Even the WAZ group, which is the second largest German publisher behind Axel Springer, is heavily regionalised. Its four main daily titles (known collectively as the Zeitungsgruppe) sell 1.13 million copies a day in North Rhine Westphalia.
The power of regional print media has been reinforced by the rise of the free press, says Carat's group head Susanne Sohnius. Zeitung Zum Sonntag has won market share from established paid-for titles in southern Germany, for example. However, more often than not it is the established players that launch free papers to complement their existing portfolios, says Sohnius. WAZ has spotted the trend and now publishes over 80 free newspapers in NRW and the neighbouring state of Thuringia.
This has made WAZ indispensable to local advertisers and unrivalled by alternative media.
With free newspapers experiencing an ad revenue boom in the 1990s, 1,300 free titles now take around 21 per cent of all newspaper adspend, according to Zenith. This has caught the attention of the Swedish publishing giant Schibsted, which recently launched free titles in Munich, Berlin and Cologne.
This move has led to a fierce dogfight with local media owners seeking to defend their patch.
With all of these structural factors reinforcing the print market, the past two years have also seen an upsurge in new types of display revenue, according to Jackson-Kloenther. Deregulation in the energy and telecoms sectors, coupled with a rash of IPOs by traditional family firms, has provided a new tranche of advertising money for the print sector. This has also had the effect of driving a wave of magazine launches.
Strong domestic revenues have been the key to German publishers' expansion overseas during the past decade. But with success has come a degree of conservatism at home. Traditional use of language and design coupled with a resistance to the introduction of colour were hallmarks of the German press in the 1990s. It is only recently that major publishers have sharpened up their act - particularly with regard to colour printing.
Inflexibility in the advertising proposition, intense top-level secrecy (WAZ and Holtzbrinck, for example, publish virtually no financial information) and the absence of sophisticated sales promotions also typify this market.
While UK print owners increasingly seek to offer creative ad solutions, one observer points out that 'clients that want to put an ad on editorial pages in German papers may have to pay a premium of up to 80 per cent.'
With this in mind, the launch of a German-language version of the FT is something of a landmark (see panel). Not only has it forced a response from the Holtzbrinck-owned business newspaper, Handelsblatt, it begs the question whether other local heavyweights will need to re-energise their products as the German economy opens up to non-traditional competitive influences.
Jackson-Kloenther is not convinced that the launch of the FTD is more than a 'blip' in the market. But she says the fact that it has 'simplified the relationship with advertisers is a breath of fresh air'. Sohnius is stronger in her praise, describing the FTD as 'a good addition, which was launched with an effective marketing strategy'.
Generally, improvements in the press are 'more about competition from broadcast and new media than the launch of the FT,' says Jackson-Kloenther.
New websites, more regional radio stations and consolidation among regional retailers are factors that play heavily on the publishers' minds, she suggests. Sohnius believes the demands of the advertising community have also driven change. By contrast, she adds, readers of regional papers have been resistant to changes in format.
Rather than go head-to-head with German publishers, the Wall Street Journal Europe's approach has been a strategic alliance with Holtzbrinck. This culminated in June 1999 with an agreement to swap a 49 per cent equity stake in its own business for a 22 per cent stake in Handelsblatt.
Fred Kempe, the editor of the WSJE, believes 'our strategy is a smarter play than the FT's. Any national market is tough from the outside and Germany is particularly competitive and difficult to understand. We took the view that Holtzbrink knows its market and let them make the strategic decisions. Pearson is finding out how difficult it is to enter a developed market in the way they have done.'
According to Kempe, the joint venture has two major benefits. The first involves strategic development at a pan-regional level. To date, the partners have launched a title called Economia in the Czech Republic and formed a German-language news service in partnership with FAZ. Secondly, 'there is a continuous exchange of news flows,' says Kempe. 'Our journalists co-operate on a daily basis. As a result, their paper has become more international and ours has got more European.'
Although Kempe is sceptical about FTD's prospects, he believes it has had an impact on the way Handelsblatt operates: 'Having a competitor breathing down your neck helps focus the mind. I have seldom seen a paper improve so much in such a short space of time. Handelsblatt has locked up personal finance and technology and embarked on an aggressive internet strategy.'
This trend has wider implications, argues Kempe. 'German publishers are part of the global economy now. They have no desire to be scooped by international print or internet rivals - so they are responding to the editorial challenge.' Strategic partnership has also been an element of FAZ's expansion - though to a more modest degree. It has a joint venture with the International Herald Tribune, which allows advertisers to buy space in both papers with just one order at favourable rates. An English version of FAZ is also available as a supplement to the IHT in Germany, Austria and Luxembourg.
The continued popularity of FAZ among an upscale readership is underlined by its strong showing in the European Business Readership Survey 2000 - where it features alongside the FT and Handelsblatt as one of the top three titles in Europe. However, the outstanding criticisms of its strategy to date are a lack of urgency over online development and colour printing.
FAZ is widely read outside Frankfurt - making it virtually a national newspaper in profile. However, the only truly national newspaper in Germany is Axel Springer's racy tabloid Bild, which has driven sales with domestic expansion.
In addition to the daily (Bild-Zeitung) which sells 4.25 million a day, Bild's Sunday sister paper (Bild am Sonntag) sells 2.38 million. Bild is generally regarded as a downmarket tabloid but its readership belies that perception. Observers close to the market stress that, like The Sun, it actually reaches large numbers of ABC1 readers. Nevertheless, its prime use as an ad medium is to supplement press campaigns in regional papers, says Sohnius.
Initially, Axel Springer's success with Bild was not replicated by its other national title Die Welt - which targets a young upscale audience.
Despite the massive clout of the Springer group, Die Welt sells around 250,000 - just over half the circulation of major regional newspapers.
That said, heavy investment has begun to improve its fortunes - particularly in the capital Berlin. Kempe's view is that: 'Die Welt has improved editorially and is a lot more readable now. It has achieved greater share as a result.' Jackson-Kloenther shares this upbeat assessment.
Springer has had speedier success with Die Welt's distinctive Sunday sister paper (Welt am Sonntag) which sells 425,000 a week. Its regional daily papers in Berlin and Hamburg also sell more than the nationally positioned Die Welt. This underlines the challenge facing the FT in Germany.
As Jackson-Kloenther points out, 'FTD is attempting to operate in a national market that until now hasn't really existed. It also gives an international perspective that is in marked contrast to what the German press tends to provide.'
Despite the challenges presented by Germany, the FT managing director, Olivier Fleurot, is not convinced that the door is closed to new ideas.
'When Focus launched, people said it wouldn't work - but it has been a huge success,' he recalls. 'Many areas of the German publishing market have looked the same for decades. There are opportunities for publishers with a fresh approach.'
FINANCIAL TIMES DEUTSCHLAND
After more than a year of planning, Pearson launched a German language version of the Financial Times in February 2000. Eight months on, the jury is still out on whether the Hamburg-based paper has a sustainable market.
Before launching FT Deutschland (FTD), the English-language FT sold around 22,000 copies in Germany. According to the FT managing director Olivier Fleurot, the only way to increase that total was to launch a local edition.
'Pearson owns newspapers in Spain and France but Germany was a hole for us,' he says. 'We'd been talking to potential partners for years but felt the timing was right to launch. Germany was opening up to the global economy and financial institutions like the European Central Bank and Frankfurt stock exchange had become increasingly influential internationally.'
FTD entered a highly competitive market dominated by the business daily Handelsblatt and the Frankfurt-based daily FAZ. Because of the competition, it launched FTD as a joint-venture with the Bertelsmann subsidiary Gruner & Jahr. 'They were extremely helpful in finding print sites,' says Fleurot.
'They also gave us great leverage in distribution and advertising.' Fleurot's hopes for the FTD were buoyed by 'the very traditional, slightly dull nature of the competition. We felt we could create a sharper newspaper with better graphics, shorter stories and a more incisive style. We also brought more international coverage and later deadlines.' FTD now sells 60,000 which Fleurot says is ahead of projections. To date, it is picking up younger readers but has made little impact on Handelsblatt's customer base. Fleurot is not unduly concerned by this: 'We expect to expand the market and also take some of Handelsblatt's readers but it will take time. Germany is heavily subscription based and people are slow to change.'
Handelsblatt did not sit back quietly while FTD launched. It introduced editorial changes of its own to make the package more attractive. In particular, it beefed up its coverage of personal investment and technology - areas of significance in Germany. FTD responded by launching its own personal finance supplement, Portfolio. It also has a regular recruitment supplement.
The decision to use the FT name reflected the strong brand equity possessed by the title, says Fleurot - who claims that FTD has been welcomed by the advertising community: 'They like competition in the market. The only issue for us has been readership research, which always takes a while to come through after launch.'
If there is a concern, it is the low level of news-stand sales within the overall FTD circulation total. After a flurry of news-stand purchases at launch, that element of distribution now accounts for just 10,699 sales a day.
While 23,974 copies are subscriptions, a further 26,012 are sold in bulk to hotels or clients like Lufthansa. Carat's Susanne Sohnius sees little to worry about in these figures given the high level of subs. On another positive note, the English FT has seen its sales rise to 28,000 since FTD's launch.
For the Pearson board, the key question is how long it will invest in the paper before it expects some returns. 'This market has 80 million people - which means there is great potential,' says Fleurot. 'We are in it for the long term.'